Malankara Plantations Ltd. v. Deputy Commissioner of Income Tax Circle-1, Kottayam

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR.JUSTICE BASANT BALAJI THURSDAY, THE 4[TH] DAY OF AUGUST 2022 / 13TH SRAVANA, 1944 ITA NO. 23 OF 2018 AGAINST THE ORDER ITA 90/2016 OF I.T.A.TRIBUNAL,COCHIN BENCH APPELLANT/S: MALANKARA PLANTATIONS LTD MALANKARA BUILDING,KODIMATHA,KOTTAYAM-686039. BY ADVS. SRI.JOSEPH MARKOSE (SR.) SRI.V.ABRAHAM MARKOS, SRI.ABRAHAM JOSEPH MARKOS SRI.HARAN THOMAS GEORGE, SRI.ISAAC THOMAS SRI.JERIE RAMESH, SMT.RACHEL ABRAHAM RESPONDENT/S: THE DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-1,KOTTAYAM-686001. BY ADV SRI.JOSE JOSEPH, SC, FOR INCOME TAX THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON 04.08.2022, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: **I.T.A. No.23/2018** **-2-** ## J U D G M E N T ## S.V. Bhatti, J. Heard Mr Joseph Markos, learned Senior Counsel for the appellant and Mr Navneet holding for Mr Jose Joseph, learned Standing Counsel for the respondent. 2. Malankara Plantations Ltd. is the appellant. The Deputy Commissioner of Income Tax, Circle 1/Revenue is the respondent. The present appeal arises from the order dated 05.06.2017 in ITA No.90/COCH/2016 before the Income Tax Appellate Tribunal, Cochin Bench. The subject matter of appeal relates to Assessment Year 2011-12 and the controversies relate to the allowance claimed by the assessee towards the replantation of rubber plants in an area where rubber trees **I.T.A. No.23/2018** **-3-** were planted and have become unproductive and are not in an abandoned area under Rule 7A(2) of the Income Tax Rules 1962 and also the deduction of expenditure incurred towards upkeep and maintenance of rubber saplings till maturity or the trees yield. 3. The Assessing Officer disallowed both the claims. The assessee has been unsuccessful before the first and the second appellate authorities/Tribunal. The Tribunal followed the Division Bench judgment of this Court in _Rehabilitation Plantations Ltd. v. Commissioner of Income Tax_[1] case. A Division Bench of this Court referred the issues arising under Rule 7A(2) of the Income Tax Rules and also the deduction towards the upkeep and maintenance expenses by the assessee. The question referred to the Full Bench reads thus: > 1 (2012) 251 CTR 343 (Ker.) **I.T.A. No.23/2018** **-4-** “ Whether the assessee/Plantation Companies under Rule 7A(2) of the Rules are entitled to an allowance towards replanting expenses and a further deduction towards upkeep and maintenance expenses incurred by the assessee for the immature plants till the age of maturity in the computation of income under the Act and Rules.” The Full Bench answered the question referred to it by order dated 01.08.2022 and the operative portion is excerpted for ready reference. “The answers to the two facets of the question referred to the Full Bench are that: “In the computation of business income under Rule 7A of the Rule 1962, the assessee under Rule 7A(2) is entitled to an allowance in respect of the cost of replacement of dead and useless rubber trees in the rubber plantation in an area not abandoned, subject to Section 10(31) of Act 1961. The upkeep and maintenance expenses incurred by the assessee till the maturity of rubber trees are revenue expenditures eligible for **I.T.A. No.23/2018** **-5-** deduction under Section 37 of Act 1961.” ## 4. The assessee raises the following substantial questions of law: “1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in confirming the disallowance of interest on loan paid on purchase of apartment claimed under the head "Income from House Property"? 2) Whether, on the facts and in the circumstances of the case, there was any material or evidence for the Appellate Tribunal to hold that the apartment was not used for business purpose and therefore not entitled to deduction under Section 24 of the IT Act? 3) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in refusing to consider the additional ground relating to exemption of subsidy received from Tea Board in the light of the decision of the Hon'ble Supreme Court in 229 ITR 383? - 4) Whether, on the facts and circumstances of the case, Appellate Tribunal is right in confirming the disallowance of **I.T.A. No.23/2018** **-6-** cost of replantation of rubber trees under Rule 7A(2) of the Income Tax Rules? 5) Whether on the facts and circumstances of the case and in the light of the Memo Explaining the provisions in Finance Bill 1995 that the deduction under Rule 8(2) is allowed in lieu of depreciation the deduction under Rule 7A(2) is also to be considered similarly? 6) Whether in the light of the Memo Explaining the provisions in Finance Bill 1995 that the deduction of cost of replantation of tea bushes under Rule 8(2) is allowed in lieu of depreciation, the deduction under similar Rule 7A(2) is to be allowed for the cost of replantation of useless rubber trees and the decision of this Hon'ble Court in the case of Rehabilitation Plantations vs CIT reported in 251 CTR 343 CTR requires reconsideration? 5. Question nos. 4, 5 and 6 relate to replanting allowance and upkeep and maintenance expenses. By following the Full Bench order dated 01.08.2022 the questions are answered in favour of the assessee and against the Revenue. However, the matter has been remitted to Assessing Officer for **I.T.A. No.23/2018** **-7-** fresh assessment. The instant question has a direct impact on the actual income received from the manufacture of rubber by the assessee. The claim as it is made out includes a head with is not otherwise includable in the computation of income. For two reasons namely that principal issues covered by questions nos. 4, 5 and 6 are remanded to the primary authority. Secondly, the statutory benefit is not availed in the manner which is stated in Rules 7A(2) of the Income Tax Rules 1962. 6. In view of the consideration by the Full Bench, Question nos. 1 and 2 do not warrant our interference. 7. Question no.3 relates to the subsidy received from the Tea Board and according to the assessee the subsidy has been erroneously included contrary to the working principle now laid down by the Full Bench by order dated 01.08.2022. For the above reasons, the questions are answered in **I.T.A. No.23/2018** **-8-** favour of the assessee and against the Revenue. Matter remitted to the Assessing Officer for consideration along with question nos. 4, 5 and 6. S.V.BHATTI JUDGE BASANT BALAJI JUDGE jjj **I.T.A. No.23/2018** **-9-** ## APPENDIX OF ITA 23/2018 PETITIONER ANNEXURES ANNEXURE A - ANNEXURE B - ANNEXURE C - ANNEXURE D - ANNEXURE E - ANNEXURE F - ANNEXURE G TRUE COPY OF THE ASSESSMENT ORDER DATED 12.03.2014 PASSED BY THE RESPONDENT FOR THE ASSESSMENT YEAR 2011-12. - TRUE COPY OF THE REVISED COMPUTATION OF TEA INCOME. - TRUE COPY OF APPELLATE ORDER DATED 31.12.2015 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS), KOTTAYAM - TRUE COPY OF ITA NO.90/COCH/2016 DATED 09.02.2016 FILED BY THE APPELLANT BEFORE THE INCOME TAX APPELLATE TRIBUNAL, KOCHI BENCH. - TRUE COPY OF THE DECISION IN THE CASE OF REHABITATION PLANTATIONS LTD. TRUE COPY OF THE RELEVANT PROVISIONS OF MEMO EXPLAINING PROVISIONS OF FINANCE BILL, 1995. IMPUGNED ORDER DATED 05.06.2017 OF THE APPELLATE TRIBUNAL